Inside Stripe, The PayPal Competitor Backed By PayPal Founders Peter Thiel, Elon Musk

Editor's Note: Stripe raised an additional $20 million of financing in early July. The Series B round was led by General Catalyst, with angels ranging from Peter Thiel to Aaron Levie, as TechCrunch reported. Earlier this year, we got the first inside look at the startup, founded by brothers Patrick and Jonathan Collison.

Off of Ramona Street in Palo Alto, down a narrow alcove lined with potted plants and flowers, is a small office hidden by hanging leaves that passersby might confuse for a misplaced country cottage. Inside, Patrick and John Collison, brothers in their early 20s from Limerick, Ireland, are punching away at their keyboards. Crumpled bags of chips are on a nearby table; the hum of a maid's vacuum is heard from another room. This is the humble headquarters of Stripe, a startup with a decidedly not-so-humble mission: to become the next PayPal.

Don't let the implausibility of that mission throw you: Stripe is backed by Sequoia Capital, Andreessen Horowitz, and—how's this for irony—PayPal cofounders Peter Thiel and Elon Musk. A source at Google Checkout recently told me Stripe is one startup the company has definitely had its eye on in the Valley. And Paul Graham has boasted to Fast Company that he believes Stripe is the next big thing. (Y Combinator backed Patrick's first startup, Auctomatic, which he sold for $5 million at the age of 19.)

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The brothers Collison dropped out of MIT and Harvard to start Stripe, a streamlined service for accepting payments on the web. Their 17-person team is now focused on simplifying that complicated process by cutting out all the clutter. No more merchant accounts, gateways, subscriptions, credit card storage, hidden fees—Stripe handles all the wonky details for a dead-simple rate of 2.9% plus 30 cents per transaction. Stripe's aim, the cofounders agree, is to make accepting payments online as simple as embedding a YouTube video.

"We wanted it to be extremely simple to integrate. You should be able to start charging credit cards immediately. There shouldn't be any latency. You shouldn't have to talk to anybody. The information you have to give shouldn't be pages long," says Patrick, pictured below at right, next to his younger brother John. "Google Checkout and PayPal are these confusing things, and we wondered why they hadn't solved these issues. What's wrong with them?"

Adds John, "Stripe really did come about because we were really appalled by how hard it was to charge for things online."

The difficulty, the brothers say, stems from an archaic legacy infrastructure. To set up a merchant account, which allows businesses to accept card payments, one must deal with an extremely fragmented industry filled with regulations, fees, and compliance standards, as well as banks, credit card associations, and other financial institutions. "In practice, when you're charged for something on the web, it's these [merchant account] companies that you are dealing with because PayPal and Google Checkout don't provide a great customer experience," Patrick says.

"Setting up that merchant account, which most people use to accept payments, can be up to a three-week process," John says. "With Stripe, you fill out your details, and you're ready to go in five minutes. We're not one layer in the midst of a whole bunch of other layers. You don't have to plug us into a whole bunch of other services. Stripe is complete."

Essentially, Stripe is a straightforward, lightweight API that developers can embed on their websites to accept payments. The Stripe Javascript enables developers to create simple payment forms, without the hassle of contracts or setting up a traditional merchant account. The code isn't likely to make much sense to consumers—and it doesn't need to, since Stripe is an under-the-hood solution. But to simplify the API so developers could understand it within minutes took "tons of iterations," according to Patrick—not to mention "stringent auditing" and certification for the startup to become PCI (Payment Card Industry) compliant, which is the industry's security standard. "We had people in our offices for weeks," Patrick says. "It's not just some rubber stamp."

Signing up is a cinch, only a few self-explanatory steps thanks to a slick UI. Once the account is activated, Stripe provides a clean dashboard for developers and merchants to track everything from payments to customers to transfers to coupons.

Why hadn't this been done before? "That was a question we asked ourselves in the early days," Patrick says. "I guess now that we're coming to the end of the process of solving it, I see why."

John takes me through the process at Stripe's offices: setting up an account, adding the code, and charging my credit card a few bucks. It takes just minutes. "This is how easy it is for someone to integrate payments," John beams. "Using only this tiny sliver of code, we just made a charge."

Of course, PayPal and Checkout are also trying to simplify the system of accepting payments online—and with tens of billions of dollars processed by the two services annually, along with the backing of corporate giants eBay and Google, it's hard to imagine that Stripe is anything more than a negligible blip on either company's radar.

But the Stripe team believes their product is far superior than what PayPal and Google offer to developers. PayPal, they say, has too many rules and initial fees. Bill Alvarado, who joined Stripe after cofounding Lala and selling it to Apple in 2009, argues that Stripe's user experience is more streamlined and has a higher degree of integration.

"You look at Google Checkout, you look at PayPal—they get in the way of the product," he says. "In many ways, Google and PayPal are trying to create their own relationship with your customer. I think that's the thing that Stripe has done right. We've designed this for fast use, yes, but also so that you can retain control of your experience, your product, and your customers."

And Patrick and John believe they'll have the backing of one large-scale and tight-knit online community that's always looking for better, more polished solutions: developers.

"Our target audience is the people making things on the web," Patrick says. "And ultimately, there are no websites that are not built by developers."

[Image: Flickr user alles-schlumpf]

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11 Comments

  • MTTSN

    I love stripe. I use them for just about everything! I've even started using Stripe for one off payments. There's a sweet little addon to stripe called easybill (www.easybill.co) that lets you create quick payment forms connected to your Stripe account with oauth

  • Dylan Higgins

    Kudos to Patrick, John and team.   It's great to see the growing numbers of savvy teams building tools and services to remove the friction in the payment onboarding and acceptance process.   For too long, payment providers viewed their payment channels as a privilege they bestow upon merchants.   It's good to see companies like Stripe giving the power back to the merchant.    Halfway across the globe, we are working hard to do the same thing with mobile money services in Kenya and beyond.   It's invigorating to be working with merchants not against them.   Keep up the good work.    

    Dylan
    Kopo Kopo

  • Zeum

    They hold the funds of every transaction for 7 days, so if this does take off like paypal, they will be collecting the interest on tens of millions of dollars a month. Clever. Users should charge them a fee for holding the money for a week. Im sure once the gang at Square finish their API Stripe will be depositing money daily like Square. Merchants want the money right away as returns and chargebacks could hose things up if all your transactions are hung up in lala land. Even the dinosaur major banks move money faster than 7 days.

  • Zeum

     

    I would agree if this were fastcompany.co.uk however its an American site so try to figure that out.

    I would say common sense as a global reader on an American website would have a built in disclaimer that would give a fairly clear idea its probably not aimed at their market. As for "false advertising", are you kidding? Dont be such a whiney victim. This is a feature on a startup website about a startup. its not an ad in the Times trying to get your business. Differentiate

  • Ivan Romanov

    Finally!! After years of gingerly stepping through the quagmire of merchant accounts and gateways - and paying every step of the way. An online payment solution that lives in the current century. Thanks.

  • Byron Gibson

    @Dan:  better yet, found your own European Stripe.  If Stripe wants to expand to Europe, they'll have to solve the European payment regulations jungle as they did the American one.  If you start now you could have a head start and be well on the way toward solving the same problem.  Such a promising business model, why wait.

  • George Bush

    These articles should always contain on the very first lines the "Available in US Only" disclaimer, so that we, EU readers, can safely disregard it (as it's basically false advertising to us). It would be a good sign of respect towards your global readers.

  • Dan Williams

    The only question is do we wait for them to enable accepting payments in Canada or setup a US Shell company so we can use Stripe?